Ask tommy2 about Real Estate - Page 5

tommy2 · #41 12-08-2006, 09:28 AM

As an update to the real estate discussion we had about 3 months ago...

I am now seeing clear signs in the commercial real estate market that the commercial real estate market is showing a clear divergence between A&B product (which the REITs and institutions are still overpaying for) and C&D product which is changing dramatically. The spread between contract price and closing price is growing (meaning that retrading abounds) and the appraisers/lenders have tightened up a bunch.

What does this mean? For those of you thinking of putting your money into commercial real estate (strip centers, office buildings, even 4 flats or duplexs that are for investment purposes), be aware that the market is in a state of flux right now and that sellers are starting to panic. Keep your bids low and hold firm. More to come.

tommy2 · #42 03-28-2007, 09:22 AM

Going to rehit this again since the papers have been full of bad RE news. Here is my take on the current environment:

This bubble had to burst and this subprime issue was well known within the industry. Just like "everybody" knew that many of the dotcom stocks 6-7 years ago were priced irrationally, so to did the bankers, appraisers, developers, and investors know that the RE market was going to crash. Nobody knew when, though.

I'll take questions, but here is the bottom line: things haven't bottomed out yet. As bad as it is now, its going to get worse. One of three scenarios is likely to play out: a soft landing on the bottom (12-18 months of things slowly getting worse), a hard crash (within 6 months and this could easily drive us into recession with the gas price issue and the instability in the Middle East making an assist), or a government bailout (this could easily happen to avoid situation #2).

Fire away. I will cross post in Finance and OOT (since that's what I did the last two times).

jaydub · #43 03-28-2007, 09:31 AM

Tommy,

On what do you base your estimates of a slow decline lasting 12-18 months or a hard crash lasting 6 months?

J

w_gibbs · #44 03-28-2007, 09:48 AM

[ QUOTE ]
Going to rehit this again since the papers have been full of bad RE news. Here is my take on the current environment:

[/ QUOTE ]

Tommy,

I am relocating and considering buying a house or renting for 6 months and then buying. I have been to the area and know the neighborhoods. Assuming I have good knowledge of the area and reasonableness of prices relative to other homes, do you think now is a good time to buy my primary residence (not investment or flipping property), or do you think prices will come down drastically over the next 6 months? Also, will interest rates go up or is now a good time to get a mortgage? Thanks in advance.

Acein8ter · #45 03-28-2007, 10:43 AM

Not all real estate markets in the US are heading down as some people belive. (Bubble) Austin, TX went up last year as well as a few other places like some places in Tennessee and North Carolina.

If you were to invest out of state (I'm in CA), which state would you 'bet' on and what city?
TIA

tommy2 · #46 03-28-2007, 11:11 AM

[ QUOTE ]
Tommy,

On what do you base your estimates of a slow decline lasting 12-18 months or a hard crash lasting 6 months?
J

[/ QUOTE ]

My gut and 10+ years of being heavily involved in RE markets. Extensive conversations with some of the smartest people in the industry...lots of economic data, etc.

I don't think the hard crash will last 6 months, btw, I think it will occur in about 6 months. We ain't there yet.

tommy2 · #47 03-28-2007, 11:15 AM

[ QUOTE ]
Not all real estate markets in the US are heading down as some people belive. (Bubble) Austin, TX went up last year as well as a few other places like some places in Tennessee and North Carolina.

If you were to invest out of state (I'm in CA), which state would you 'bet' on and what city?
TIA

[/ QUOTE ]

The bubble is less about pricing and more about liquidity in the market. My point is that the bubble hasn't burst yet--as bad as people think (in some areas) it has been, it is about to get worse. All sorts of lenders are going to change their underwriting, Wall Street is going to overreact and many people are going to be unable to buy homes. Since the demand is going to drop the prices are going to follow. What's worse is that fewer people than ever have equity in their homes so there will be a strong chilling effect on the market--guys who would normally sell won't because they will have to write a check at closing--so they stay put. This combo could easily cause a hard crash in 6 months or so.

tommy2 · #48 03-28-2007, 11:17 AM

[ QUOTE ]
[ QUOTE ]
Going to rehit this again since the papers have been full of bad RE news. Here is my take on the current environment:

[/ QUOTE ]

Tommy,

I am relocating and considering buying a house or renting for 6 months and then buying. I have been to the area and know the neighborhoods. Assuming I have good knowledge of the area and reasonableness of prices relative to other homes, do you think now is a good time to buy my primary residence (not investment or flipping property), or do you think prices will come down drastically over the next 6 months? Also, will interest rates go up or is now a good time to get a mortgage? Thanks in advance.

[/ QUOTE ]

I'd wait. I'd bet (and am) that prices are going to drop 10-25+% more in lots of areas and sellers are going to panic. Not every house will drop, but the people who have to sell are going to fire sale stuff in lots of areas in the US.

tommy2 · #49 03-28-2007, 11:20 AM

[ QUOTE ]
Not all real estate markets in the US are heading down as some people belive. (Bubble) Austin, TX went up last year as well as a few other places like some places in Tennessee and North Carolina.

If you were to invest out of state (I'm in CA), which state would you 'bet' on and what city?
TIA

[/ QUOTE ]

As far as placing a bet...once the crash happens, I'd bet on all the obvious plays--San Fran, SoCal, North Shore of Chicago, NYC, Phoenix, etc. The good stuff stays good, but there will be an overcorrection to the general market conditions which will drive good RE down as well as bad RE.

Redd · #50 03-28-2007, 11:30 AM

[ QUOTE ]
What's worse is that fewer people than ever have equity in their homes so there will be a strong chilling effect on the market--guys who would normally sell won't because they will have to write a check at closing--so they stay put. This combo could easily cause a hard crash in 6 months or so.

[/ QUOTE ]

Tommy, why wouldn't people's reluctance to sell at a loss result in lower market supply and actually encourage prices to go up instead of down?